RBC June 5, 2024
RBC Uranium Watch
Takeaways from World Nuclear Fuel Market Conference
We attended the 2024 World Nuclear Fuel Market conference in Atlanta on June 3-4, meeting with industry participants across the nuclear fuel cycle. We think near-term, market activity may be tempered by comfortable contract coverage and the likelihood of waivers granted to US utilities seeking exemption from the Russian uranium import ban. However, there was wide acknowledgement among conference participants that the nuclear fuel market is tight across the supply chain long-term and more investment in capacity is needed. The conversion market in particular is considered a potential bottleneck while the uranium deficit is set to widen with significant supply risks. Within our coverage, we see opportunities for Cameco (expand conversion capacity, sell proven uranium production into rising demand) and NexGen (develop new production to meet long-term deficit).
Waivers for Russian imports from DoE (Department of Energy) likely for 2024/2025, while some uncertainty for 2026/27: Many participants we met believed the US DoE will likely grant waivers to utilities seeking exemptions to the Russian uranium import ban set to take effect on August 12, 2024, especially for deliveries in 2024/2025. However, some expressed uncertainty for 2026/2027 as the US DoE has indicated the level of documentation and evidence required for waivers will increase over time. We think a data point to watch for near-term availability of 'alternative viable sources' will be an RFP seeking EUP (enriched uranium product), announced by a non-US utility that uses Russian uranium re-exported as fabricated fuel through the US — offers (or lack thereof) may be an indication on the availability of an alternative viable source to Russian uranium and be considered by the US DoE.
Solid contract coverage and price increases have dampened near-term contracting activity, but should pick-up long-term: A consistent theme we heard through the conference from suppliers was the need for more long-term contracting demand while utility buyers expressed comfortable contract coverage for the near-term. Many participants also suggested buyers may need time to adjust to the sharp price increase for all nuclear fuel components, which can impact budgeting decisions for years into the future. However, there was wide acknowledgement from all participants that more supply is needed across the nuclear fuel cycle and contracting is required to incentivize suppliers to add more capacity. Additionally, US utilities in attendance noted plans to build new nuclear reactors to meet rising power demand driven by the build-out of hyperscale datacenters.
Suppliers remain disciplined, awaiting demand signals to add capacity: Across the nuclear fuel cycle, suppliers stressed a disciplined approach to capacity additions and the need for long-term contracted demand. While current prices are high enough to indicate strong returns for many projects, contracted demand at these price levels remain below volumes needed to support these projects long-term. Suppliers cited the historical precedent of the last cycle when many added capacity, but the lack of follow-up demand resulted in over-supply and low prices. Uncertainty around the future role of Chinese EUP was also mentioned, with reference to the recent increase of Chinese EUP imports into the US. A diversion of Russian EUP to China could free up some Chinese EUP for export and will be an important development to watch going forward. We expect some re-arrangement of trade flows, but do not expect a one-to-one replacement of Russian EUP given geopolitical considerations.
Conversion a potential bottleneck: Conversion was unanimously viewed as the most supply constrained part of the nuclear fuel cycle, especially in Western markets, given reduced supply as utilities turn away from Russia and increased demand due to higher tails assays and rising nuclear fuel requirements. We think this may be a potential market opportunity for Cameco with a potential future re-start of the Springfields conversion facility in the UK.
Uranium deficit expected to widen long-term: Uranium was widely acknowledged as in a moderate deficit, but product is available at prices well-above marginal cost and incentive pricing, with a potentially much wider deficit long-term if supply is not added. Many noted uncertainty on the long- term supply outlook given reliance on re-starts, expansions, and new projects that come with potential technical challenges. Utilities are willing to support new supply with long-term contracts, but only at the right price and terms, and we believe there is a consensus within the industry that significant new production should be sold via long-term contracts to mitigate market disruption. We think the long- term deficit should benefit Cameco as an incumbent producer with proven production, and potentially NexGen, as a developer of one of the world's best undeveloped uranium projects.